Glaxo hit on rumours of takeover

By Rosie Murray-West

12:01AM BST 01 Jun 2002

GlaxoSmithKline (GSK), the pharmaceutical giant, saw its shares slump to a four-and-a-half year low yesterday, after reports that it has held takeover talks with struggling US rival Bristol Myers Squibb (BMS).

Neither company would comment on the talks, which have been widely expected ever since BMS issued a savage profits warning in early April. Glaxo's chief executive, Jean Pierre Garnier, has said that the company would consider takeovers as well as buying in late-stage drugs to bolster its weak pipeline.

GSK's shares tumbled 33 to £14.04 as analysts questioned the wisdom of such a deal. "Neither company has a particularly exciting pipeline," said one analyst. "Putting them together does not make that more attractive."

However, GSK is not expected to face many competition difficulties if it acquires BMS, because it does not have a strong position in cancer or cardiovascular drugs, both of which are BMS specialities.

Mr Garnier is under pressure to come up with a deal after a series of patent losses and product failures. The latest court defeat, on patents relating to antibiotic Augmentin, produced a revision of earnings forecasts and has hit GSK's share price considerably.

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Market specialists say that BMS will almost certainly be taken over by another big pharmaceutical company because the share price has fallen so far. GSK rivals Novartis of Switzerland and US group Pharmacia have also been seen as possible predators.

BMS drugs include cancer drug Taxol, diabetes drug Avandia and antidepressant Serzone. Many of the group's products are now at risk from cheaper generic copies.

In April, the company warned that earnings could fall by nearly half this year, owing partly to an overhang of inventory with wholesalers, but also to reduced demand for its drugs.